The Exchange Rate Conundrum

In late February, the slow appreciation of China's currency was interrupted by a discrete depreciation from 6.06 to 6.12 yuan per dollar. Despite making front-page headlines in the Western financial press, this small 1 percent depreciation was much too small to significantly affect trade in goods and services – and hardly anything compared to how floating exchange rates change among other currencies. Why then the great furor? And what should China's foreign exchange policy be?